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I’d like to introduce a guest column by Dr Kristina Lybecker, Associate Professor of Economics at Colorado College in Colorado Springs. Kristina is an economist with a PhD from the University of California at Berkeley. She specialises in innovation and intellectual property rights and has been writing on these issues for 12 years. She is currently employed full-time at Colorado College.

Sometime in the near future India’s Supreme Court will judge whether Glivec, a blood and stomach cancer drug hailed as a breakthrough in cancer treatment, deserves a patent in India. In doing so, the Court will rule on an important section in India’s patent law that seeks to prevent frivolous patenting and one that Novartis, the company behind Glivec, is accused by critics to have fallen foul of. For recent coverage on the case, see here.

Many believe that a judgement against Novartis would be a win for affordability and access. For not only will it keep cheaper generic versions of Glivec on the market, it will also uphold a section that, at least in spirit, was written to prevent endless patenting by innovators for minor tweaks delaying generic entry.

But in truth, the barrier-to-access dilemma is far more complicated and nuanced than patent protection for more than one reason.

In a recent study, Danzon, Mulcahy, and Towse (2011) examine pharmaceutical prices in emerging markets, paying particular attention to the importance of income, competition, and procurement efforts. See here. Their findings indicate that within-country income inequality contributes to relatively high drug prices in middle and low income countries. Generic products and the number of therapeutic competitors only weakly impacts prices to retail pharmacies. Their analysis indicates that generic competition may not be the route to lower drug prices for developing nation consumers as previously assumed.

Governmental tax and tariff policies are significant contributors to inflated pharmaceutical prices. In a study of fifty-three low income countries, Bate, Tren, and Urback (2005) find that when all duties and taxes are accounted for, the cost of medical treatments and equipment can be inflated by over thirty percent. This type of government intervention is widely utilized to both protect local industry through high import barriers and raise government revenue. According to a 2003 study by the European Commission, total taxes and duties vary widely, from a low of 0.01 percent in Malaysia to a striking 60 percent in India, with a global average of 18 percent.

The lack of a publicly-funded health care system also presents a significant barrier to access. In most countries publicly-supported health care systems pool the costs of healthcare across the broader population so that individuals do not face a catastrophic financial burden from the costs of treatments for cancers and other diseases. Unfortunately this is not the case in India. India has consistently chosen not to invest in the health of its citizens, as reflected by the fact that it spends less on health benefits than most other low or middle income countries in the world.

In addition, India is a perfect candidate for price differentiation. Poor and vulnerable Indian patients should not be expected to pay the same prices for drugs as their wealthier neighbors. Price differentiation, different prices based on income and ability to pay, would provide patients of all income levels with access to the life-saving medicines that they need.

Advance market commitments may be another avenue for ensuring access for the world’s poorest. With this mechanism, lower pharmaceutical prices are secured through a commitment to large bulk purchases. The study by Danzon, Mulcahy, and Towse (2011) focuses specifically on the benefits generated by different procurement methods, finding an important link to affordable access. Commitments to larger purchase amounts may significantly lower drug prices, allowing for both affordable medicines for patients and a guaranteed market for innovative companies. Such agreements enhance access and provide a reliable supply of therapeutic medicines for patients in need.

Fundamentally, the Glivec decision isn’t about access. It’s about innovation and fostering an environment in India that encourages breakthrough therapies and protects innovation. The research that brought us Glivec, and that which brings us all breakthrough medical advances, is incentivized by strong intellectual property rights. For those in India who are genuinely concerned about access to affordable medicines, look first to India’s own policies.

Footnote : In the interests of transparency, the writer states that she has been commissioned to work for the pharmaceutical industry on issues of innovation, corruption, counterfeiting and intellectual property rights. However, she has not been compensated or otherwise rewarded for this piece which stems from her intellectual interest in the topic and closely relates to her academic research.

Hi Gauri, thanks for this write up from an international author. While the views are well accepted, one thing needs attention here. And it is that, Gleevec is not an example of how the regulators here would like to make drugs affordable. Rather, it is an example of what according to the Indian patent law is supposed to be ‘novel’ and thus ‘patentable’. Unlike the west, India’s IP law is narrow in its definition and does not include innovation that offers ‘minor’ differentiation over the previous innovation. The WIPO has agreed that every country will have its own unique IP law with common salient features. And it is under that context that India framed its IP law – making it TRIPS compliant. In other words, the debate should now move from ‘what should be the law’ to ‘how is it being implemented’. And I am glad to see, through recent develolpments that the courts are sticking to the spirit of law in making judgements, hopefully allowing for the evolution of an efficient system.

@Nimish Mehta Thank you for your comment and thoughts about the Indian IP law. I agree that we are looking for an efficient system, but one that also incentivizes innovation and encourages the development of new breakthrough medical therapies. The Glivec case is about safeguarding innovation and about gaining clarity on the unique aspects of Indian patent law. I hope that the outcome of this case will provide both.

Would like to add here that even though patent lawsuits are about well, patents, Indian courts have shown an openness to admit “affordability” arguments. For instance, the Delhi High Court had refused to injunct Cipla from marketing a copycat of Roche’s patented cancer drug Tarceva (until the patent’s validity was decided) stating that this would be against public interest as Cipla was making the drug available at much lower prices. Of course, an appeals court did not make much of that argument, see http://spicyipindia.blogspot.in/2009/04/breaking-news-roche-loses-tarceva.html and ruled against Roche for other reasons. This shows that affordability arguments will keep cropping up in patent lawsuits even though they may not end up being deciding factors in judgements. In this context, the arguments advanced by Dr Lybecker are based on the very real concern in some quarters that the patents law might end up being used primarily as a tool to address the affordability issue and not just to settle whether or not specific innovations need to be rewarded.

India has progressed from a country which did not acknowledge patents to one that does, even if it does not satisfy innovators completely. Wish this subject were as simple as saying that India (and other countries) need to recognise that innovation needs reward. For a minute, let’s wonder if the issue is not just about respecting and protecting innovation but also affordability. That is, if Glivec were being sold for a margin of 30% over its cost of production plus the research cost amortised over its entire patented life, and then spread across estimated global sales, what would the price of the drug be? And, what is it actually being sold at?

But here’s a question. Isn’t this all about how much a pharma company can make a consumer pay to save his or her life or cure their illness?

The fact that the developed world consumer is willing to pay so much–with the help of compulsory medical insurance funded by the govt or employers–makes it affordable to market drugs at this price. If there was no affordability, then instead of $100bn, would the drug company have thrown Lipitor in the dustbin, or would they have been alright earning $50bn or even $10bn.

The question to ask really is: how does one reduce the effect of affordability on drug prices and what level of profitability is acceptable to save lives? And, if pharma cos earned so much money when innovation was being (and still is) protected, why has their drug pipeline gone dry? And, a good topic to research would be: how much money have pharma companies earned from blockbuster drugs, and how much of it has been ploughed back into research.

I agree with you that India’s healthcare system is broken and compulsory licensing is not going to fix that ill. But respecting innovation or evergreening are not related to it.

Hi Gauri, Great analysis. I was thinking of the same issue from the time I first read the above guest post. As a jourrnalist, I have no intentions of taking any sides but a few points referenced to high costs of research and drug pricing are jarring to me. The golden era of discovery saw dozens of drugs getting approved. Big Pharma, admittedly, developed an arrogance and then the slide started. CEOs now confess they created layers and unproductive cost centers in the name of R&D. Universities and academic institutions came to the rescue for many and for others, in a limited way, the trend of Japanese firms licensing compounds kept the blockbusters ringing. But now with the pipeline drought, the regulatory rigors and issues like comparative effectiveness, things look worse. Its coming a full circle. Pressed to a tight corner, costs are being shed, alliances are back and biotechs are beginning to breathe. But the biggest change is the realization that affordable innovation for the lowest strata is another story. Drugs that are not affordable are sorely missing their basic objective.